Warnings Of A New Credit Crisis And The Potential For System Wide Bail-In Push

Alternative analysts are often shunned in their views that the 'world is ending' when it comes to the financial system, and this despite the fact that those who correctly forecast the bursting of the housing bubble and subsequent credit crisis were dead on in their assertions.

But while many of these same prognosticators have so far been wrong in their timing of how long the Fed and other central banks could keep both the markets and monetary system going through the incessant use of continuous credit and money printing, just like in 2007-08, it is only a matter of time before these individuals once again are proven right.

Yet with that being said, alternative financial analysts rarely have a big audience or 'choir' to listen to their message, and this in part is because most people in the West (U.S. and Europe) have not had to go through a severe financial crisis in over 80 years (Great Depression).  But unlike their grandparents who had to live through that era, when there have been economic crises during the past eight decades the government has put in place many programs to protect their people from outright starvation and homelessness.

One of these programs of course is that of insurance on your bank accounts (FDIC).  But something happened in 2010 which has made even this safety net no longer valid as the Dodd-Frank Banking Reform Act changed your depositor status to that of an unsecured creditor, and where the banks can institute what is commonly known as a bail-in of your money that will negate the FDIC from paying you back most of the money you will lose.

We have already seen bail-ins take place here in this decade in the West with the 'test case' example in Cyprus. And with central banks suddenly shifting course from eight years of propping up the banks and the markets with zero percent interest rates and tens of trillions in cheap money to that of Quantitative Tightening (QT), is it a coincidence that the new Federal Reserve Chairman happens to be one of the original architects of the bail-in program?

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Gary Anderson 3 years ago Contributor's comment

What he said about not bailing out banks through the government is a fantasy that I am sure he would like to do. But now that he is Fed chairman, it is unlikely that he will jettison the 250k insurance. Could he bail in above that amount? Sure. And we do remember Cyprus. But having the populace hiding cash under the mattress or going to bitcoin can't surely be the goal of the Fed which wants to keep track, best they can, of the money supply. That is why I wrote this about Ron Feldman: www.talkmarkets.com/.../ron-feldmans-fed-secret-and-treasury-bond-behavior

Ken Schortgen Jr 3 years ago Author's comment

Gary -

I believe the 'secret' to being able to ditch the FDIC insurance for most depositors is through this scheme.

Banks announce they need to recapitalize and issue a bail-in, taking unsecured creditor monies first. In return they will issue those depositors 'equity swaps'.

Then the FDIC will tell the depositor that they have received 'in kind' recompense for their rehypothicated moneies. That's how I believe they will get away with not having to cover any upcoming claims on insurance.

Gary Anderson 3 years ago Contributor's comment

Well, that may work one time. I don't see the US concept of bank safety being undone as viable in our society. But you could be right, one time.

Ken Schortgen Jr 3 years ago Author's comment

In that you are most probably correct. But all it took was 'one time' for a massive bailout on that fateful day back in 2008 and with the fear of God put into Congressmen to vote for it.

I personally don't believe when bail-ins come it will be piecemeal. It will come on a holiday similar to 1933 when they shut down the banks.